| Assume that an older, wealthy widow(er)or
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| | the "Crummey Powers" clause, it is a gift
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| divorced individual has a substantial
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| | of a present interest in property.Assume
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| amount in tax-deferred retirement plans
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| | that the beneficiary does not exercise
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| such as defined contribution pension
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| | the right to withdraw the donation. The
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| plans, 401k plans, 403b plans, and
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| | irrevocable life insurance trust will use
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| traditional IRAs. The widow(er) wants to
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| | the donation by the parent to pay the
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| leave the retirement plans to his or her
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| | premiums on the life insurance.Where does
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| children.The problem is that when the
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| | the parent obtain the money to donate the
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| children inherit the tax-deferred
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| | money to the trust to pay the life
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| retirement plans and take distributions
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| | insurance premiums? The parent converts
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| from them, the distributions are fully
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| | the balances in the retirement plans into
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| taxable to the children. The retirement
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| | a life annuity. Therefore, the parent
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| plans are income in respect of a decedent
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| | receives payments for life and uses part
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| (known as IRD), which is taxable. In
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| | of them to pay the insurance premiums
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| addition, the balances in the retirement
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| | through the trust. At the parent's death,
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| plans are fully included in the
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| | the annuity is worth zero. Therefore, the
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| decedent's gross estate for estate tax
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| | children do not have any income in
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| purposes.If the individual were married
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| | respect of a decedent. Nothing from the
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| rather than being a widow(er)or a
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| | annuity is included in the gross
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| divorced individual, usually the
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| | estate.The life insurance company pays
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| individual would want to leave the money
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| | the children the proceeds of the life
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| in the retirement plans to his or her
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| | insurance policy. The proceeds of life
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| spouse. In that case, the surviving
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| | insurance on account of the death of the
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| spouse could transfer the money into his
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| | insured are not subject to income tax.
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| or her own IRA and treat the account as
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| | They are not subject to estate tax
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| his or her own. The surviving spouse
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| | because the decedent did not own the
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| would avoid income tax on the money in
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| | policy.This plan allows the parent to
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| the decedent's tax-deferred retirement
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| | have an income stream during life from
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| plans. The bequest would also qualify
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| | the annuity. The annuity payments would
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| for the unlimited marital deduction for
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| | be fully taxable unless the individual
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| estate tax purposes.Is there any way to
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| | has any basis in the annuity. The
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| achieve the parent's goal of having
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| | individual will need to use other income
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| enough money to pay living expenses and
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| | tax planning techniques to reduce the
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| yet leave a good inheritance to the
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| | income tax resulting from the annuity
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| children? The answer is yes if the older,
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| | payments.This strategy converts amounts
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| wealthy parent is insurable for life
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| | that would be subject to income tax and
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| insurance purposes.Here is how the
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| | estate tax to amounts that are not
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| solution would work. The parent obtains a
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| | subject to income tax or estate tax in
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| life insurance policy large enough to
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| | the hands of the children. This strategy
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| replace the balances in all the
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| | requires the services of a tax advisor,
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| tax-deferred retirement plans. However,
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| | an attorney, and a life insurance agent.
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| the parent is not the owner of the life
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| | They all must be competent and exercise
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| insurance. The parent forms an
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| | great care in implementing the strategy.
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| irrevocable life insurance trust that has
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| | However, if done correctly, this strategy
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| a "Crummey Powers" clause, and the
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| | can result in substantial tax savings. It
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| irrevocable life insurance trust owns the
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| | also gives the parent more peace of mind
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| life insurance policy. This technique
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| | knowing that the children will not have
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| will keep the value of the life insurance
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| | to pay taxes on the life insurance.Alan
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| out of the decedent's gross estate.A
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| | D. Campbell is a CPA in Arkansas and
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| "Crummey Powers" clause gets its name
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| | Florida and is self-employed primarily as
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| from a court case. It has to do with
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| | an author of tax publications. He earned
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| whether a gift is subject to gift tax.
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| | a Ph.D. in accounting with an emphasis in
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| Gifts that are less than the annual
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| | taxation from the University of North
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| exclusion amount are exempt from gift tax
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| | Texas. He is also admitted to practice
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| as long as the gift is a present interest
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| | before the United States Tax Court. He
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| in property. A "Crummey Powers" clause
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| | has published numerous articles on tax
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| allows the beneficiary of a life
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| | topics in professional journals. He is
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| insurance trust the right to withdraw
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| | the co-author of the book Tax Strategies
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| gifts made to the trust that the donor
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| | for the Self-Employed and the revision
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| intends to pay for life insurance
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| | editor of CCH Financial and Estate
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| premiums. As long as the beneficiary has
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| | Planning Guide, 15th edition.
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| the right to withdraw the donation under
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| |
|
